This is a 2020 updated post about Bitcoin and Altcoin wallets. Learn what is a Bitcoin wallet, what are the main types and What kind of Bitcoin wallet is right for you?
Before you buy bitcoins or any other altcoins, you need a good wallet to safely store your new digital money.
You can store Bitcoin on a hardware wallet, a mobile wallet, a desktop, or a web wallet. Most wallets are multicurrency wallets so you can use them for a variety of Altcoins.
What does a Bitcoin wallet do?
A Bitcoin wallet lets you receive bitcoins, send bitcoins and store them for short or long periods. Nowadays many wallets have other features like market info, trading options, and more.
What are the main types of Bitcoin wallets?
Two main types are a hot Bitcoin wallet and a cold Bitcoin wallet. Each has its pros and cons.
Hot Bitcoin wallets
Hot Bitcoin wallets are installed on your computer, mobile phone or a remote server. Hot wallets are very easy to use on a daily basis, and most people use this type of wallet. However the main disadvantage of a hot wallet is the fact that it is connected to the internet. That means that your coins are also accessible to hackers.
Cold Bitcoin wallets
Cold wallets maintain a high level of security because they store your coins offline. The original cold wallet was simply a cold paper wallet with private keys printed on It. Paper wallets are less common today.
Nowadays most hardware Bitcoin wallets are physical devices, designed to secure bitcoins. This is done by storing the wallet private keys on the hardware device itself.
Hardware Bitcoin wallets have some major advantages over software wallets:
- private keys are often stored in a protected area and cannot be transferred out of the device in plaintext.
- Hardware wallets are considered immune to computer viruses.
- Hardware wallets are easier to use than a cold paper wallet which must be imported to a software wallet at some point.
- Hardware wallets allow the user to validate sending coins of the device itself. That means that you have to have physical access to the wallet to still the coins.
Custodial vs. Non-Custodial wallets
Bitcoin wallets can also be classified as custodial and non-custodial. When using a non-custodial wallet you are the only owner of the private key (seed phrase) and no one else can get access to it.
When using a custodial wallet you have a partner that can access your private key, usually another company. The risks are clear since this other party can bankrupt or simply steal your coins.
Full node wallets hold a full copy of the blockchain to validate every transaction. Because it is becoming progressively bigger, SPV wallets (simplified payment verification) don’t hold a full copy of the blockchain. SPV wallets offer a simpler and faster option.
Why hardware wallets are considered the best option?
Hardware Bitcoin wallets have some major advantages over software wallets, mainly the fact that your private keys are stored offline. Read more about hardware wallets here.
It is strongly recommended to use a hardware wallet. Hardware Bitcoin wallets are the safest wallets available. Ledger Nano S and TREZOR are currently the finest hardware wallets on the market, and both support nearly two dozen cryptocurrencies.
Ledger Nano S
The Ledger Nano S is currently one of the best if not the finest hardware wallet with a screen. It can be used on any desktop computer or Android smartphone.
TREZOR (launched on August 2014) was the first Bitcoin hardware wallet that offered secure cold storage plus the ability to spend coins with the convenience of a hot wallet.
What kind of Bitcoin wallet is the best for me?
- If you are making payments in person, you will prefer a mobile wallet.
- If you are making payments frequently but not in person you may prefer to keep your funds on a desktop wallet.
- If you are interested in availability you can choose an online Bitcoin wallet that will allow you to access your bitcoins from any internet-connected device.
- If you are dealing with very large amounts of Bitcoin you will need a very secure wallet. In that case, you must use a hardware wallet to store your coins offline.
- You can also combine those wallets: store large amounts on the hardware wallet and small amounts on the mobile wallet when you need to use them. Think of your hardware wallet as your savings account and your mobile wallet as your checking account.
Crypto for all!